Legalize It -- The Economic Argument

Just as the Super Bowl is a monument to commerce, arguments about legalizing marijuana tend to contain a lot of dollar signs.
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This Sunday's Super Bowl XVIII -- a.k.a. the Smoke-a-Bowl, the Chronic Bud Bowl, the Super Party Bowl, etc. -- has aroused considerable interest among non-football fans as the competition is between the teams in the two states where marijuana became legal this year. Just as the Super Bowl is a monument to commerce, arguments about legalizing marijuana tend to contain a lot of dollar signs. Proponents point to higher tax revenues, "pot tourism," and lower law enforcement costs. Opponents claim that medical costs will go up and workplace productivity will go down.

All of those factors are relevant to any good economic assessment of legalizing it, but they are not the whole story. Believe it or not, there is more to economics than dollars and cents (though we economists do like it if we can impute a dollar value to everything, because it makes it easier to reach a conclusion). An economist would say, go ahead and legalize marijuana as long as the expected net benefit of doing so is positive (and perhaps only if the risks of a net negative benefit are not too high). Many of the benefits and costs are not normally measured in dollars, and can only be guessed at anyway, so this is tricky business.

For example, a big point of contention is whether usage will go up. Opponents of legalization tend to argue that usage will skyrocket, while proponents tend to argue that most people who would want to smoke marijuana are already smoking it now. Both arguments imply that more usage is a bad thing. If it is, you have to make that case, while keeping in mind that the 19 million monthly marijuana users in this country probably enjoy it. (And 32 million Americans partook at least once in the past year.) It's not free, they run the risk of arrest for possessing it, there are legal substitutes out there like alcohol; and yet they choose to consume it. You might not approve of that consumption choice, just like I might not approve of someone's choice to consume pork rinds and Keystone Light, but if it makes them happy we have to take that into account. People are allowed to have bad taste. The point is that any reasonable cost-benefit analysis has to include the enjoyment of marijuana by future users, as well as current users who might be able to get it more cheaply, conveniently, safely or with less worry. It's hard to believe that the referenda in Washington and Colorado would have passed without large numbers of people "voting their vice."

If you want to argue that marijuana usage is bad because the drug is addictive, destructive or harms productivity, then you have to show some evidence for these claims. Ample medical evidence suggests that marijuana is less dangerous than alcohol, and in a recent New Yorker interview even President Obama concurred. A recent study by economists D. Mark Anderson and Daniel I. Rees found that semi-legalization, in the form of medical marijuana, in 16 states led adults to consume more marijuana but to moderate their alcohol consumption, leading to a 9 percent decrease in traffic fatalities. Marijuana has not been found to be physically addictive, and addiction rates of any kind are lower for marijuana than for alcohol, tobacco and harder drugs. (Aside: I live in upstate New York, which has an indoor smoking ban, and every day this winter I see nicotine addicts shivering and smoking outside; it's hard to imagine someone going outside in the dead of an upstate New York winter to smoke a joint.) While perhaps it is better to have no vices, the vast majority of people who are currently deterred from using marijuana arguably find another, legal vice, mostly alcohol and/or tobacco. Granted, as a drug that is typically smoked, marijuana could lead to lung cancer and other health problems, but unlike tobacco cigarettes, marijuana is typically consumed in small doses and has yet to be linked to a single death.

As for the effect of marijuana on worker productivity, the first thing to note is that nobody is advocating smoking marijuana or being high on the job, any more than anyone advocates drinking or being drunk on the job. People are expected to show up for work sober, and employers have always had the right to fire people who fail to meet that basic requirement. The issue, then, is whether smoking marijuana in one's free time impairs one's job performance. Long-term memory loss and "amotivational syndrome" have been alleged, but decades' worth of studies have debunked both of those claims.

All told, the expected costs of legalizing marijuana are minimal. (That includes one I did not mention previously, the "gateway" effect of marijuana to using harder drugs. As for that claim, studies have shown marijuana to be scarcely more of a gateway drug than alcohol, and that the vast majority of marijuana users have never even tried cocaine.) What about the benefits? The tax benefits tend to be greatly overblown, first of all because higher taxes aren't really a benefit (they are a transfer from people who pay them to people who don't) and also because studies, notably that of economist Jeffrey Miron, estimate the increased tax take at about $6 billion, or less than 1 percent of the current federal deficit. The benefits of reduced prohibition enforcement costs are similarly small, about $10 billion. The bulk of the benefits would be to current and prospective marijuana consumers. I understand that many people do not care about other people's prospective enjoyment of legal marijuana or their increased convenience in obtaining it. Which is fine: the economic way of thinking is not for everybody. But consider the biggest benefit, which is that some 19 to 32 million people would no longer be treated as criminals and subject to arbitrary arrest, imprisonment, asset forfeiture and other punishment.

This benefit goes way beyond the criminal justice system's costs of enforcing pot laws. It is about the ability of those 19 to 32 million users, their families, and friends to live normal lives. In my own neighborhood a kindly older gentleman was recently arrested for possession of not quite four pounds of marijuana and sentenced to a year in state prison. He was a good neighbor and caused no inconvenience to anyone in the community, but current law dictated that he could no longer live among us. His imprisonment has been devastating to his wife and family, has deprived the community of a good and well-liked neighbor, and has made him a convict or ex-convict forever. No reasonable cost-benefit analysis would justify his imprisonment.

Perhaps because of the huge personal and social costs of criminalizing the recreational behavior of tens of millions, about a dozen states have already "decriminalized" marijuana. In most cases, decriminalization is a halfway measure whereby consumption is either legal or subject to a civil fine (like a parking ticket) but the drug's manufacture or sale is still illegal. This is better than continuing to treat marijuana as a Schedule I narcotic, but this kind of decriminalization has been tried before, with alcohol. It was called Prohibition, which actually did not ban the consumption of alcohol but only its manufacture, sale and transportation. We've all heard how that turned out. Under alcohol prohibition or pot decriminalization, using the substance is okay but procuring it makes you a criminal and forces you to deal with bigger criminals (dealers) in an unregulated black market. Product safety, quality control and peaceful conflict resolution, among other things, will be lacking in such a market. If pot were "decriminalized" nationwide along these lines, some 19 to 32 million people could still be criminals if they tried to buy it. Compared with continuing the war on marijuana, the net benefits of decriminalization appear large, but the net benefits of legalization look much larger. Open and regulated markets are safer than black markets, and our judicial system is clogged enough already with real criminals.

Ranjit Dighe is Professor and Chair of Economics at the State University of New York at Oswego. His research interests include Prohibition and the Great Depression.

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